“Corrections,” an ironic misnomer, has jumped from less than $5 billion a year to more than $10 billion in the last decade, over twice as fast as school spending, the biggest budget item. It now costs about $45,000 a year to feed, clothe and medicate each of the state’s 170,000-plus inmates, or roughly five times what taxpayers spend on a typical public school student. And that doesn’t count what it costs to supervise tens of thousands of parolees.

The fact that California spends five times more on inmates than public school students is appalling! I do not have a clue why this is the case, or how it is in other states, but it seems that our “corrections” system is VERY broken. This enormous expense in one reason for California’s budget woes.

Hopefully, the increase in housing affordability and new record-high will play an important role in the real estate market’s recovery. Interestingly, the record-high level of housing affordability has not yet been reported, or at least I couldn’t find a single news report on this topic.

By 51 percent to 42 percent, Californians say they would rather have higher taxes and more services than lower taxes and fewer state services.

Sixty percent also think K-12 public schools should be protected from budget cuts.

A majority of voters favor boosting the sales tax by 1 1/2 cents, increasing the vehicle license fee by $12 a year, adding a nickel a drink to the alcohol tax, raising the tax rate for the richest Californians and increasing corporate taxes.

And while Republicans are leading the battle for a state spending cap, the 70 percent of all Californians who now support those limits includes 67 percent of Democrats and 71 percent of independents.

One ominous note for Schwarzenegger is that 61 percent of likely voters oppose his plan to borrow billions of dollars against future state lottery earnings.

In general, this means Californians prefer higher taxes with more services. K-12 should not be touched. There should be a spending cap and no more borrowing.

The latest blow came with the second downgrading in four weeks by Standard & Poor’s of the Golden State’s remaining $8.7 billion of economic recovery bonds, or ERBs. These bonds are backed by sales-tax revenue, which is taking a hit as consumers in California, like the rest of the country, rein in their spending.

California will not have the ability to borrow any more! Even if California is able to borrow, the interest rates will be so high we will have to cut more out of the budget or raise taxes.

“(Former President George W.) Bush spent a little money for a brand-new program with enormous impact on public schools,” he said, referring to the $1.2 billion spent each year on No Child Left Behind.

“By contrast, Obama is spending enormously more money on education than Bush – it intensifies the federal role but does not change the substance of what schools are doing. It’s the reverse of Bush.”

$10 billion is slated for California’s schools. This is much needed to prevent layoffs and cuts. Education is the most important investment we, as a society, can make in our future. The future of the U.S. economy relies on educating our future workforce.

Unfortunately, our education system is falling behind. We rank almost #30 in the world for education (we used to be #1). There are many reasons for this decline and I won’t point fingers. The bottom line is we need reform! We need to find models which are teaching students the skills to succeed in today’s world, not yesterday’s. It will be a major ideological shift for parents and educators but we will continue to fall further behind if changes are not made.

A great lesson from J. Bradford DeLong of U.C. Berkeley. It’s a great example of the velocity of money and why the government doesn’t need to “just print money” to get our economy going:

Suppose that we have four agents: Alice, Beverly, Carol, and Deborah.

Suppose that Beverly has $500 in cash that she owes Carol, due in two months. Suppose that Alice and Carol are both unemployed and idle.

In one scenario in two months Beverly goes to Carol and pays her the $500. End of story.

In a second scenario Beverly says to Alice: “I have a house. Why don’t you build a deck–I will pay you $500 after the work is done. Here is the contract.” Alice takes the contract and goes to Carol. She shows the contract to Carol and says: “See. I will be good for the debt. Cook me meals so I will have the strength to build the deck–here’s another contract in which I promise to pay you $500 within 90 days if you cook for me.” Carol agrees.

Alice then asks Beverly for payment. Beverly says: “Wait a minute.” She goes to Carol and says: “Here is the the $500 cash I owe you.” Beverly pays the money to Carol. Beverly then says: “But now could I borrow the cash back by offering you a long-term mortgage at an attractive interest rate secured with an interest in my newly more-valuable house?” Carol says: “Sure.” Beverly files an amended deed showing Carol’s mortgage lien with the town office. Carol gives Beverly back the $500. Beverly then goes to Alice and pays her the $500. Alice then goes to Carol and pays her the $500.

The net result? (a) Alice who would otherwise have been idle has been employed–has traded her labor for meals. (b) Carol who would otherwise have been idle has been employed–has traded her labor for a secured lien on Beverly’s house. (c) Beverly has taken out a mortgage on her house and in exchange has gotten a deck built. (d) Carol has the $500 cash that Beverly owed her in the first place.

Alice has more income and consumption expenditure than if she hadn’t taken Beverly’s job offer. Carol has more income and saving than if she hadn’t cooked for Alice and then invested her earnings with Beverly. Beverly has an extra capital asset (the deck) and an extra financial liability (the mortgage) than if she had never offered to hire Alice.

A deck has gotten built. Meals have been cooked and eaten. Two women have been employed. And all this has happened without printing any extra money.